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ParticipantThe MLS shows the most recent listing ($775,000 – $850,000) as an expired in 05/01/2007, not as a sale. If it did sell it may take a week before the sale price is posted in the public records databse.
There’s another home, apparently a model match, in escrow on the same street, albeit on the opposite side. It was listed from $759k – $775k, but it doesn’t have the view amenity or the pool.
ParticipantThe entitlement process doesn’t involve any construction, but it does involve identifying the sources of those utilities and the costs to bring them to the sites.
In the case of Del Sur, all those studies would have to have been completed well in advance of turning the first shovel of dirt. They had to amend the General Plan, the zoning, they had to resolve all the hillside and open space easements, the traffic studies, set aside land or contribute to existing schools, fire stations and other infrastructure they ould impact. The list isn’t endless, but it’s pretty long.
As for how they finance, the answer is: Yes, developers have to borrow a lot of money in order to complete these various processes. The terms of those loans are not cheap either. We’re not talking about 6% interest rates and no closing costs here. Development and construction loans are very expensive. It usually works in the form of several loans in succession over a period of years, each rolling over into another loan as a particular phase of the project is completed. The payoff of all loans usually doesn’t occur until the developer is in their final phases. All financing gets paid off before any profits are realized.
When a developer walks away from a purchase option, they not only forfeit their deposits, they also forfeit all the time and money they’ve already put ito those projects. In some cases, those “other” costs may well equal the amount of the deposit money they’re losing.
May 15, 2007 at 12:15 PM in reply to: “…The forecast was so shocking that I hesitated to print it.” #52904ParticipantAs a percentage, 30% probably registers with a lot of the bears because that’s the point most people would associate with a bubble market and it’s demise.
Remember, the bulls first said that the trend would not correct at all, but would just level off for a couple years and take off again. The New Paradigm. Later, they revised that line into the “Soft Landing” wherein pricing would ease back by about 10% or so, level off for a coule years and then take off again. Meanwhile, the bulls gave the bears a lot of grief for even considering the idea that the market would eventually correct to the long term trend.
Those BS theories have now been proven to be completely unfounded and unwarranted.
It’s now obvious to everyone that there was no New Paradigm, and only the most diehard bulls would say the Soft Landing has a ghost of a chance. So yeah, you’re going to catch a sense of vindication from the bears going on here and there.
ParticipantIt was written FOR third-graders.
ParticipantUmm,
With respect to the La Jolla area, I’d say the truth lies somewhere in the middle. Yes, values did decline significantly, but I think if you used house-to-house comparisons you’d probably see it wasn’t 50%.
I was appraising throughout that entire time period (though admitedly, not a lot of houses) and I’d have pegged it at 35% or perhaps a touch more in La Jolla. There were a few market segments that lost 40% in pricing during the last bust. Enough so that I often wonder why that dip is commonly characterized as being limited to 15%. Based on my experience, -15% off the peak was the exception, not the rule.
As for personal wealth, I think it’s important to take note of how much of that wealth is in the form of RE money or Stock money that is subject to catastrophic losses. Our region has not created that many businesses that are not related to RE or directly benefitted from RE equity. I think that when RE declines, the number of wealthy people will decline at a disproportionate rate; i.e., the percentage of wealthy people will decline faster and farther than the percentage of sales prices. And the stock market may not be the haven people seem to think it is.
ParticipantThe entire community of Del Sur is a must-sell situation, whether the developer realizes it yet or not. This is a planned community. To even get to that point requires most of the entitlement process to be completed.
The entitlement process includes all the little sundry studies, surveys, planning, environmental impact reviews, and subdivision processes. Once entitled, a parcel only needs payment of the bonds and fees and physical improvements to finish them – a finished lot consisting of a site with grading, streets and utilities stubbed to the site; everything you need to build the structure and sell it off as a home.
They probably haven’t completed but a fraction of the roads and utilities and rough grading yet, but they’re in way too deep to just walk away. They need builders or investors to step up and take those parcels off their hands, ’cause with the current trends the carrying costs will eat them alive before the market comes back.
ParticipantIdiot savant. Barely functioning. Counting on fingers and toes. Eat with hands. Drink beer. Married monogamous white male of 50; socially inept and barely tolerated in public. So I stay in. I do surf, though – but only because nobody in the lineup seems to mind.
—————–The demographic angle isn’t mine and I couldn’t take credit for it. I read it in a book a while back, the title of which escapes me. The economist was talking about wealth transfer to the Boomers from the Greatest Generation (although the book precedes when that phrase was coined). He said that the consumption patterns and refusal to save of the Boomers was heavily influenced by their knowledge that their parents would pass on inheritable estates to them before the boomers would retire. Boomers have basically been spending their inheritances.
He also said the consumption patterns would wind down rather quickly as of 2010, which would have corresponding effects on the general economy. He noted that the GenX kids coming up had different definitions of success, and that lifestyle and leisure time would be more important to them than corporate titles and suits and commuting. That’s one reason for the extended childhood that’s currently in vogue; it isn’t all the result of Boomers spoiling their children.
I didn’t agree with everything he was saying at the time, but I did see enough parallels close to home to pay attention to him.
———–The generational house for the extended family isn’t new, not even in the U.S.. Neither are communal living arrangements of various sorts. Remember the boarding houses commonly depicted in the westerns? Bunkhouse on the ranch? Single room apartments with shared bathrooms down at the end of the hall and a dining room downstairs? I appraised a building like that in downtown San Diego about 10 years ago; it was recently converted to condos but that required totally gutting the interior.
All told, I think the nuclear family may yet turn out to be the anomoly.
For a while back in the mid-90s I was thinking about buying a nice triplex or 4-plex to run my own version of the extended family compound; minus, of course, the weapons cache and bunkers that are favored by the religious nutcases. The idea was to start a family trust and pass it from generation to generation. My oldest was a teeneager at the time. I came to realize that if they have the opportunity, most adults prefer to be off on their own and not participate in a patriarchal hierarchy. The spouses of the kids suffer a bit in many of those situations, and privacy is tough. Plus, my wife hated the idea. That ended that.
I think people will gravitate towards small and medium-sized condos and townhomes before they choose to double up in a large house. I think it’s practially a crime that the average tract house ever got any bigger than about 2,000 SqFt. With that said, I also think its possible that doubling up may become a lot more common because of the economics involved.
Now which fork do I use for the salad? I keep forgetting.
May 14, 2007 at 3:59 PM in reply to: “…The forecast was so shocking that I hesitated to print it.” #52814ParticipantAs a point of order, the fact that the seller’s company booked the loss instead of the seller has nothing to do with the data point itself. There was a purchase at the beginning and there was a loss at the end. The only difference this time being who paid for that loss. If not for the relo this seller probably wouldn’t have had any reason to sell, but that doesn’t mean their equity position wouldn’t have suffered nonetheless.
Now if you’d care to make the argument that the relo company could have done better, possibly even avoiding the loss, that’s another discussion entirely. One of the things relo companies do is obtain 2 separate appraisals for those properties prior to buying them from the employee. If there’s a variance between the two appraisals they reconcile it, and by that I mean that one or the other is corrected; they aren’t averaged.
The relo factor in this paired sale situation underscores the fact that there are always a certain number of must-sell transactions at any given time. What’s different during a downswing is that there are more of them because of other factors that don’t normally come into play during good times. Obviously, if enough of these must-sells accumulate they are of effect on the rest of the sales.
We’re not at that tipping point yet, but I think we might possibly get there by the end of this year.
ParticipantOpening a wall to perform some repairs on pvc piping and fixtures and then repairing the drywall is cheap. I wouldn’t get too excited about it being a construction defect.
ParticipantIt kind of depends on when the land developers purchased and whether or not they spent a lot of money in the entitlement process. Once their interest in a site exceeds a certain point they’re in a tough spot. They have to worry that a current retail price for a finished lot at $450k doesn’t erode to $250k or less, ’cause if it does there won’t be enough margin between the finished lot value and the unimproved value to economically justify the remainder of the subdivision process.
It costs money to hold a property. I don’t see that holding land that already has entitlements for 5 years until the market rebounds is a plan. A couple of these developers seem to think things are going to firm up this summer, but I think that’s a fools dream. MLS sales of 2,200/month vs. 18,000+ listings is not indicative of an economic environment that’s going to lead to a lot of new demand in the short term.
FYI, I just appraised a proposed suubdivision site in 92009 (Carlsbad) wherein the land developer thinks the retail value of the finished sites will be about $350,000 by the time they get done with it next year; that’s down substantially from the peak. Based on his purchase price of the site and the money it takes to get the entitlements, grade the site and install streets and utilities, he cannot break even if the retail value of the finished sites decline from $350k to $250k.
I wish him well, but inasmuch as I think housing values in that neighborhood for new homes could slide another $100k in the next 24 months (’cause that’s how long it will take to build the homes and sell the majority of them off), I fear he may not realize his goals.
ParticipantAnother thing about the boomer generation is their retail purchasing power, which when it declines will have a corresponding effect on the general economy.
We tend to consume more when we enter that nesting phase of our lives and raise our kids. After the kids leave, those expenses beyond necessities decline. Having kids in the house often triggers consumption patterns for the adults they wouldn’t otherwise have, and that goes beyond stuff that’s related to raising the kid. Having a teenager around can prompt a parent to buy the bigger TV or to stay current with clothing fashions, or to buy the big ride, or do other things they wouldn’t do if it was just the parents in the house. Kids actually add to the peer pressure the parents feel to compete.
A person only needs so many vacuums, toasters, furniture, linens, etc.. Once they have what they want they usually have no problem cutting back when the money slows down.
In generations past, the age ranges where this usually happened was somewhere around 45-50, after the kids were out of the house and doing their own thing. This generation is different because we have allowed our kids to “enjoy” that extended childhood that carries through to their late-20s. This means those parents don’t really slow down till their late-50s.
If the Boomer generation is just now starting to turn 60, that means that the big bubble in reduced retail consumerism – if it comes at all – would still lie ahead for most people. A couple who waited until their late-30s to have kids wouldn’t get to slowing down until they hit their mid-60s.
Once the boomer generation is out of the consumerism phase the demographics would seem to dictate that the retail trends will go into a long term decline, with smaller spikes in the future. Whether that will be offset by foreign immigration and/or the elevation of the currently-poor into middle income ranges remains to be seen.
I kinda doubt that the purchasing power of the boomers will be completely replaced after they’re gone. I can also envision that we may be entering a period of lowered expectations, the effect of which may manifest itself in everything from the size of houses that are built to the designs of cars. We may possibly never see subdividions of 6,000 SqFt houses or 7,000 lb. urban assault vehicles again after the boomers leave the scene.
Participant“I probably would have turned around at seeing the line up to get in. Frankly, if there are 1200 bidders there, that’s enough potential buyers to snap up half of San Diego’s monthly resale volume on a single morning. ”
I wish I’d said that. Even if only half of them are serious there’s still way too much competition for the limited number of opportunities.
It’ll be interesting to see what the turnouts are like in the months ahead. Surely some of the 1200 were just there to see what would happen. Given the resulting sale prices many of these casual observers probably won’t be back for a while. That’s not to say they won’t be replaced by an equal or possibly high noumber of other casual lookers in the future.
Considering the resulting sale prices, if the number of attendees go up that could indicate that a lot of people think the current conditions are a breather prior to the next big upswing. If the numbers go down, it would indicate that many of these people will only buy at a steep discount.
ParticipantI am the idiot savant. I can barely function in anything outside of what I do for a living. Financial planning isn’t what I do for a living so I’ll defer to those who understand that better.
I will note that any plan that includes “living frugally” doesn’t exactly fit in with the ideal that is constantly being pushed in the TV commercials for investment companies. Your plan seems a lot more realistic to me than that ideal, and I think you are probably a lot closer to pulling off your plan than 90% of the boomers. It doesn’t seem like of lot of them see any farther than their next car payment.
If you were willing to relocate and take the equity from your domicile with you I’m sure you could live the high life in any of a number of towns throughout Middle America – but that does involve other compromises that some people would not voluntarily choose to make.
As for me, I’m fortunate that I enjoy what I do for a living, because my retirement plan involves cutting back on work, not quitting. I suppose some people would call that a compromise, too.
ParticipantBump
As of today, the MLS reports 2,257 sales, which is NOT 15% off the 2006 total of 2,622 for April 2006. It’s only 14.15% less. That’s still pretty bad.
I don’t think this number is going to increase significantly from here.
YTD, we are down about 12% in terms of volume compared to the same first 4 months of 2006. 8,191 for 2007 vs. 9,335 for 2006. If we extrapolate that trend for the remainder of the year we’ll end up at about about 25,000 sales through the MLS for the year, which falls between 1997s 27,200 and 1996s 23,500.
The thing to remember is that we’ve added more than 10% to our regional SFR/condo supply since 1996, so as a percentage of inventory, our current volume of sales represents a smaller percentage of total inventory. I read that to mean that a 25,000 volume in 2007 would be even WORSE than a 23,000 volume in 1996.
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